Punitive damages

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Punitive damages, or exemplary damages, are damages assessed in order to punish the defendant for outrageous conduct and/or to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit. [1] Although the purpose of punitive damages is not to compensate the plaintiff, the plaintiff will receive all or some of the punitive damages in award.

Contents

Punitive damages are often awarded if compensatory damages are deemed an inadequate remedy. The court may impose them to prevent undercompensation of plaintiffs and to allow redress for undetectable torts and taking some strain away from the criminal justice system. [2] Punitive damages are most important for violations of the law that are hard to detect. [3]

However, punitive damages awarded under court systems that recognize them may be difficult to enforce in jurisdictions that do not recognize them. For example, punitive damages awarded to one party in a US case would be difficult to get recognition for in a European court in which punitive damages are most likely to be considered to violate ordre public. [4]

Because they are usually paid in excess of the plaintiff's provable injuries, punitive damages are awarded only in special cases, usually under tort law, if the defendant's conduct was egregiously insidious. Punitive damages cannot generally be awarded in contract disputes. The main exception is in insurance bad faith cases in the US if the insurer's breach of contract is alleged to be so egregious as to amount to a breach of the "implied covenant of good faith and fair dealing", and is therefore considered to be a tort cause of action eligible for punitive damages (in excess of the value of the insurance policy). [lower-alpha 1]

National applications

Australia

In Australia, punitive damages are not available for breach of contract, [5] but are possible for tort cases.

The law is less settled regarding equitable wrongs. In Harris v Digital Pulse Pty Ltd, [6] the defendant employees knowingly breached contractual and fiduciary duties to their employer by diverting business to themselves and misusing its confidential information. The New South Wales Court of Appeal held that punitive damages are not available both for breach of contract and breach of fiduciary duty. Heydon JA (as he then was) said there is no power to give punitive damages in respect of a claim in equity, although he was content to decide the case on the narrower ground that there is no power to award punitive damages for the specific equitable wrong in issue. Spigelman CJ concurred, although he emphasized that the contractual character of the fiduciary relationship in question, and refrained from deciding on whether punitive damages would be available in respect of equitable wrongs more analogous to torts. Mason P dissented and opined that there was no principled reason to award punitive damages in respect of common law torts but not analogous equitable wrongs.

Canada

In Canada, punitive damages may be awarded in exceptional cases for "malicious, oppressive and high-handed" misconduct. [7] The Supreme Court of Canada set out 11 principles to guide judges and juries for awarding punitive damages in the leading case Whiten v Pilot Insurance Co 2002 SCC 18. The principles are not intended to form a checklist or be mandatory, but instead is to be considered based on the facts of each case. [8]

England and Wales

In England and Wales, exemplary damages are limited to cases in which at least one of the circumstances set out by Lord Devlin in the leading case of Rookes v Barnard has been met: [9]

  1. Oppressive, arbitrary or unconstitutional actions by the servants of government.
  2. Where the defendant's conduct was 'calculated' to make a profit for himself.
  3. Where a statute expressly authorises the same.

Rookes v Barnard has been much criticised and has not been followed in Canada, Australia [lower-alpha 2] or New Zealand, despite English cases often being influential in other Commonwealth countries. or by the Privy Council. [lower-alpha 2] It was strongly criticised by the Court of Appeal in Broome v Cassell , but on appeal the House of Lords upheld Rookes v Barnard.

Exemplary damages go beyond the philosophical aims of a contractual remedy and are not available as damages for breach of contract. Lord Atkinson said, in Addis v Gramophone Co Ltd :

“In many other cases of breach of contract there may be circumstances of malice, fraud, defamation, or violence, which would sustain an action of tort as an alternative remedy to an action for breach of contract. If one should select the former mode of redress, he may, no doubt, recover exemplary damages, or what is sometimes styled vindictive damages; but if he should choose to seek redress in the form of an action for breach of contract, he lets in all the consequences of that form of action: Thorpe v Thorpe (1832) 3B.&Ad. 580. One of these consequences is, I think, this: that he is to be paid adequate compensation in money for the loss of that which he would have received had his contract been kept, and no more.”

In 1997 the Law Commission recommended that punitive damages should never be available for breach of contract. [11]

Germany

German courts do not award punitive damages and consider foreign punitive damages unenforceable to the extent that the payment would exceed the damages plus an allowance for reasonable defence costs big enough so that the plaintiff would get a full reimbursement of its loss but not more.

Japan

Japanese courts do not award punitive damages as a matter of public policy, and Japanese law prohibits the enforcement of punitive damage awards obtained overseas. [lower-alpha 3]

In Japan, medical negligence and other species of negligence are governed by the criminal code, which may impose much harsher penalties than civil law. For instance, many causes of action which would subject a defendant to a potential punitive damage award in the U.S. would subject the same individual to prison time in Japan.

New Zealand

In New Zealand it was held in Donselaar v. Donselaar [13] and confirmed in Auckland City Council v. Blundell [14] that the existence of the Accident Compensation Corporation did not bar the availability of exemplary damages. In Paper Reclaim Ltd v Aotearoa International [15] it was held that exemplary damages are not to be awarded in actions for breach of contract but the court left open the possibility that exemplary damages might be available where the breach of contract is a tort.

In 2010, in Couch v Attorney-General the New Zealand Supreme Court barred exemplary damages for cases of negligence unless the defendant acts intentionally or with subjective recklessness. [16]

Punitive damages can also be awarded for equitable wrongs. In Acquaculture Corporation v New Zealand Green Mussel Co Ltd, [17] the majority of the New Zealand Court of Appeal held that in addition to compensation, punitive damages could be awarded for breach of confidence, albeit that, on the facts, they were not merited. Similarly, in Cook v Evatt (No.2), [18] Fisher J in the New Zealand High Court added exemplary damages of NZ$5,000 to an account of profits of over NZ$20,000 for breach of fiduciary duty.

People's Republic of China

In very few industries, punitive damages could be awarded in either contractual or tort case, except a tort relevant to product defraud or defect. Article 49 of the PRC Law on Protection of Consumer Rights and Interests enacted on October 31, 1993, provides the rule that any consumer is entitled to a recovery of double the purchase price of products or service from the seller or service provider against their defraud. Successful cases have been widely reported[ citation needed ] in this regard.

Article 96 of the PRC Law on Food Safety adopted on February 28, 2009, raises the punitive damages to ten times the purchase price added to the compensatory damages that the victim has already claimed from the producer or seller for food with poor quality not compliant to food safety standards. Such a substantial statutory amount considered by the legislative organ is based on several extremely serious food quality incidents in the past two years, such as the notorious Sanlu tainted milk powder case.

Application of the punitive damage rule is further expanded with the enactment of the PRC Law on Tort Liability effective as of July 1, 2010. This new law sets forth that a victim is entitled to claim punitive damages from any manufacturer or seller expressly aware of the defects in products but still produces or sells them if it results in death or heavy injuries. Since this is a somewhat new law so far, no further explanatory regulation regarding a detailed amount and applicable scope is promulgated guiding the application of this rule, so a court judge may have discretional power to decide punitive damages case by case under this new law.

United States

Punitive damages are a settled principle of common law in the United States. [19] They are generally a matter of state law (although they can also be awarded under federal maritime law), and thus differ in application from state to state. In many states, including California and Texas, punitive damages are determined based on statute; elsewhere, they may be determined solely based on case law. Many state statutes are the result of insurance industry lobbying to impose "caps" on punitive damages; however, several state courts have struck down these statutory caps as unconstitutional. [20] They are rare, occurring in only 6% of civil cases that result in a monetary award. [21] Punitive damages are entirely unavailable under any circumstances in a few jurisdictions, including Nebraska, Puerto Rico, and Washington.

The general rule is that punitive damages cannot be awarded for breach of contract, but if an independent tort is committed in a contractual setting, punitive damages can be awarded for the tort. [22] Although state laws vary, punitive damages are usually allowed only when the defendant has displayed actual intent to cause harm (such as purposefully rear-ending someone else's car), rather than in cases of mere negligence, or causes an injury through action taken in reckless disregard for the lives and safety of others. [23]

Punitive damages are a focal point of the tort reform debate in the United States, where numerous highly publicized multimillion-dollar verdicts have led to a fairly common perception that punitive damage awards tend to be excessive. However, statistical studies by law professors and the Department of Justice have found that punitive damages are only awarded in two percent of civil cases which go to trial, and that the median punitive damage award is between $38,000 and $50,000. [20]

There is no maximum dollar amount of punitive damages that a defendant can be ordered to pay. In response to judges and juries which award high punitive damages verdicts, the Supreme Court of the United States has made several decisions which limit awards of punitive damages through the due process of law clauses of the Fifth and Fourteenth Amendments to the United States Constitution. In a number of cases, the Court has indicated that a 4:1 ratio between punitive and compensatory damages is high enough to lead to a finding of constitutional impropriety and that any ratio of 10:1 or higher is almost certainly unconstitutional. However, the Supreme Court carved out a notable exception to this rule of proportionality in the case of TXO Production Corp. v. Alliance Resources Corp. , where it affirmed an award of $10 million in punitive damages, despite the compensatory damages being only $19,000, a punitive-to-compensatory ratio of more than 526-to-1. In this case, the Supreme Court affirmed that disproportionate punitive damages were allowed for especially egregious conduct. [24]

In the case of Liebeck v. McDonald's Restaurants (1994), 79-year-old Stella Liebeck spilled McDonald's coffee in her lap which resulted in second and third-degree burns on her thighs, buttocks, groin and genitals. The burns were severe enough to require skin grafts. Liebeck attempted to have McDonald's pay her $20,000 medical bills as indemnity for the incident. McDonald's refused, and Liebeck sued. During the case's discovery process, internal documents from McDonald's revealed the company had received hundreds of similar complaints from customers claiming McDonald's coffee caused severe burns. At trial, this led the jury to find McDonald's knew their product was dangerous and injuring their customers, and that the company had done nothing to correct the problem. The jury decided on $200,000 in compensatory damages, but attributed 20 percent of the fault to Liebeck, reducing her compensation to $160,000. The jury also awarded Liebeck $2.7 million in punitive damages, which was at the time two days of McDonald's coffee sales revenue. The judge later reduced the punitive damages to $480,000. The case is often criticized for the very high amount of damages the jury awarded. Nevertheless, many legal scholars and documentary film makers like Hot Coffee argued that corporate lobbyists seized the opportunity to create public misinformation and distrust of the legal system by leaving out important facts in their television advertisements, such as, that the verdict was roughly equivalent to two days of coffee sales for McDonald's, that Liebeck received permanent injury to her genitals and groin requiring surgery, and that McDonald's had already received numerous complaints about the temperature of the coffee. [25]

In BMW of North America, Inc. v. Gore (1996), the Supreme Court ruled that an excessive punitive award can amount to an arbitrary deprivation of property in violation of due process. The court held that punitive damages must be reasonable, as determined by the degree of reprehensibility of the conduct that caused the plaintiff's injury, the ratio of punitive damages to compensatory damages, and any comparable criminal or civil penalties applicable to the conduct. In State Farm Auto. Ins. v. Campbell (2003), the Supreme Court held that punitive damages might only be based on the acts of the defendants which harmed the plaintiffs. The court also elaborated on the factors courts must apply when reviewing a punitive award under due process principles.

Most recently, in Philip Morris USA v. Williams (2007), the Supreme Court ruled that punitive damage awards cannot be imposed for the direct harm that the misconduct caused others, but may consider harm to others as a function of determining how reprehensible it was. More reprehensible misconduct justifies a larger punitive damage award, just as a repeat offender in criminal law may be punished with a tougher sentence. Dissenting in the Williams case, Justice John Paul Stevens found that the "nuance eludes me", suggesting that the majority had resolved the case on a distinction that makes no difference.

Punitive damages are subjective by their very nature. Since their purpose is to punish—as opposed to compensate—opinions on how to accomplish this will vary widely among jurors. Regardless, research into punitive damages has revealed some common principles. Wealth of the defendant is positively correlated with large punitive damage awards, jurors either downplay or ignore jury instructions regarding punitive damages determinations, and jurors tend to punish defendants who have conducted a cost-benefit analysis. [21]

Important cases

See also

Explanatory notes

  1. ↑ The landmark cases that established this tort were Comunale v. Traders & General Ins. Co., 50 Cal. 2d 654, 328 P.2d 198, 68 A.L.R.2d 883 (1958) (third-party liability insurance), and Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973) (first-party fire insurance).
  2. 1 2 In Australian Consolidated Press Ltd v Uren [10] the Privy Council upheld the Australian rejection of Rookes v Barnard
  3. ↑ Enforcement of foreign awards of punative damaged was prohibited since 2006 by the General Act Related to the Application of Laws, [12] although was predated by the judgment of the Supreme Court of July 11, 1997, 51-6 Minshu 2573, and other precedents.

Related Research Articles

At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognised at law, the loss must involve damage to property, or mental or physical injury; pure economic loss is rarely recognised for the award of damages.

Negligence is a failure to exercise appropriate and/or ethical ruled care expected to be exercised amongst specified circumstances. The area of tort law known as negligence involves harm caused by failing to act as a form of carelessness possibly with extenuating circumstances. The core concept of negligence is that people should exercise reasonable care in their actions, by taking account of the potential harm that they might foreseeably cause to other people or property.

A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable by the state. While criminal law aims to punish individuals who commit crimes, tort law aims to compensate individuals who suffer harm as a result of the actions of others. Some wrongful acts, such as assault and battery, can result in both a civil lawsuit and a criminal prosecution in countries where the civil and criminal legal systems are separate. Tort law may also be contrasted with contract law, which provides civil remedies after breach of a duty that arises from a contract. Obligations in both tort and criminal law are more fundamental and are imposed regardless of whether the parties have a contract.

Liebeck v. McDonald's Restaurants, also known as the McDonald's coffee case and the hot coffee lawsuit, was a highly publicized 1994 product liability lawsuit in the United States against the McDonald's restaurant chain.

This article addresses torts in United States law. As such, it covers primarily common law. Moreover, it provides general rules, as individual states all have separate civil codes. There are three general categories of torts: intentional torts, negligence, and strict liability torts.

A legal remedy, also referred to as judicial relief or a judicial remedy, is the means with which a court of law, usually in the exercise of civil law jurisdiction, enforces a right, imposes a penalty, or makes another court order to impose its will in order to compensate for the harm of a wrongful act inflicted upon an individual.

BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), was a United States Supreme Court case limiting punitive damages under the Due Process Clause of the Fourteenth Amendment.

Tortious interference, also known as intentional interference with contractual relations, in the common law of torts, occurs when one person intentionally damages someone else's contractual or business relationships with a third party, causing economic harm. As an example, someone could use blackmail to induce a contractor into breaking a contract; they could threaten a supplier to prevent them from supplying goods or services to another party; or they could obstruct someone's ability to honor a contract with a client by deliberately refusing to deliver necessary goods.

Penal damages are liquidated damages which exceed reasonable compensatory damages, making them invalid under common law. While liquidated damage clauses set a pre-agreed value on the expected loss to one party if the other party were to breach the contract, penal damages go further and seek to penalise the breaching party beyond the reasonable losses from the breach. Many clauses which are found to be penal are expressed as liquidated damages clauses but have been seen by courts as excessive and thus invalid.

<span class="mw-page-title-main">Non-economic damages caps</span> Limitations in lawsuits

Non-economic damages caps are tort reforms to limit damages in lawsuits for subjective, non-pecuniary harms such as pain, suffering, inconvenience, emotional distress, loss of society and companionship, loss of consortium, and loss of enjoyment of life. This is opposed to economic damages, which encompasses pecuniary harms such as medical bills, lost wages, lost future income, loss of use of property, costs of repair or replacement, the economic value of domestic services, and loss of employment or business opportunities. Non-economic damages should not be confused with punitive or exemplary damages, which are awarded purely to penalise defendants and do not aim to compensate either pecuniary or non-pecuniary losses.

<span class="mw-page-title-main">Adequate remedy</span>

An adequate remedy or adequate remedy at law is part of a legal remedy which the court deems satisfactory, without recourse to an equitable remedy This consideration expresses to the court whether money should be awarded or a court order should be decreed.. Adequate remedy at law refers to the sufficient compensation for the loss or damages caused by the defendant with a proper monetary award. The court must grant the adequacy of remedy that will lead to a "meaningful hearing". Whether legal damages or equitable relief are requested depends largely on,whether or not the remedy can be valued. Both two elements, compensation and the meaningfulness of hearing, provide a proper way to have an adequate remedy. The word "meaningfulness" of hearing in the law process is the assumption that the defendant compensated must be meaningful for the injured party where the defendant made a fully covered compensation for all the losses. Hence, the hearing in which cannot give any right amount of compensation award or settlement is not "meaningful", and the unavailability of the compensation will lead to an inadequate remedy. The adequate remedy at law is the legal remedies by meaning it is satisfactory compensation by way of monetary damages without granting equitable remedies.

Insurance bad faith is a tort unique to the law of the United States that an insurance company commits by violating the "implied covenant of good faith and fair dealing" which automatically exists by operation of law in every insurance contract.

<span class="mw-page-title-main">Tort reform</span> Legal reforms aimed at reducing tort litigation

Tort reform consists of changes in the civil justice system in common law countries that aim to reduce the ability of plaintiffs to bring tort litigation or to reduce damages they can receive. Such changes are generally justified under the grounds that litigation is an inefficient means to compensate plaintiffs; that tort law permits frivolous or otherwise undesirable litigation to crowd the court system; or that the fear of litigation can serve to curtail innovation, raise the cost of consumer goods or insurance premiums for suppliers of services, and increase legal costs for businesses. Tort reform has primarily been prominent in common law jurisdictions, where criticism of judge-made rules regarding tort actions manifests in calls for statutory reform by the legislature.

<i>Rookes v Barnard</i>

Rookes v Barnard [1964] UKHL 1 is a UK labour law and English tort law case and the leading case in English law on punitive damages and was a turning point in judicial activism against trade unions.

Browning-Ferris Industries v. Kelco Disposal, 492 U.S. 257 (1989), was a case in which the Supreme Court of the United States held that the Eighth Amendment's prohibition of unreasonable fines does not apply to punitive-damage awards in civil cases when the United States is not a party.

State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003), was a case in which the United States Supreme Court held that the due process clause usually limits punitive damage awards to less than ten times the size of the compensatory damages awarded and that punitive damage awards of four times the compensatory damage award is "close to the line of constitutional impropriety".

<i>Addis v Gramophone Co Ltd</i>

Addis v Gramophone Co Ltd [1909] AC 488 is an old English contract law and UK labour law case, which used to restrict damages for non-pecuniary losses for breach of contract.

<i>Whiten v Pilot Insurance Co</i> Supreme Court of Canada case

Whiten v Pilot Insurance Co, 2002 SCC 18, [2002] 1 S.C.R. 595 is a leading Supreme Court of Canada decision on the availability of punitive damages in contract. The case related to the oppressive conduct of an insurance company in dealing with the policyholders' claim following a fire. According to the majority, "[t]his was an exceptional case that justified an exceptional remedy."

<i>Donselaar v Donselaar</i> New Zealand law case

Donselaar v Donselaar [1982] 1 NZLR 97 is an often cited case in New Zealand regarding the legal issue of exemplary damages which held that although the ACC law prohibits damages for compensation, it does not exclude liability for punitive damages.

TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443 (1993), was a decision by the Supreme Court of the United States, which upheld the decision of the West Virginia state court awarding $19,000 in compensatory damages and $10 million in punitive damages to the plaintiff. Although multiple justices recognized that the punitive damages were 526 times the compensatory damages, the Court held a "general concern of reasonableness" should guide courts in determining constitutionally acceptable damages under the due process clause of the Fourteenth Amendment.

References

  1. ↑ Restatement of Torts, Second § 908(l).
  2. ↑ See Kemezy v. Peters, 79 F.3d 33 (7th Cir. 1996) (Posner, J.)
  3. ↑ See Howard A. Shelanski & J. Gregory Sidak, Antitrust Divestiture in Network Industries, 68 U. CHI. L. REV. 1, 44 (2011), https://ssrn.com/abstract=265652.
  4. ↑ "Courts outside U.S. wary of punitive damages". International Herald Tribune. 2008-03-26.
  5. ↑ Gray v Motor Accident Commission [1998] HCA 70, (1998) 196 CLR 1
  6. ↑ Harris v Digital Pulse Pty Ltd [2003] NSWCA 10, (2003) 197 ALR 626
  7. ↑ Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), [2002] 1 SCR 595, at para 36.
  8. ↑ Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), [2002] 1 SCR 595, at para 95.
  9. ↑ Rookes v Barnard [1964] AC 1129, [1964] 1 All ER 367
  10. ↑ Australian Consolidated Press Ltd v Uren (1967) 117 CLR 221, [1966] HCA 37
  11. ↑ "Aggravated, Exemplary and Restitutionary Damages" (PDF). The Law Commission. November 1997. LC247. Archived (PDF) from the original on 2019-02-14.
  12. ↑ 法の適用に関する通則法 § 22(2)[General Act Related to the Application of Laws]. 2006. Should a tort be governed by the law of a foreign state, even if the facts to which the law of such foreign state apply constitute a violation of the laws of such foreign state and of the laws of Japan, the victim may not claim any compensation or other disposition other than that recognized under the laws of Japan.
  13. ↑ Donselaar v. Donselaar [1982] 1 NZLR 97
  14. ↑ Auckland City Council v. Blundell [1986] 1 NZLR 732
  15. ↑ Paper Reclaim Ltd v Aotearoa International [2006] 3 NZLR 188
  16. ↑ Couch v Attorney-General [2010] NZSC 27
  17. ↑ Acquaculture Corporation v New Zealand Green Mussel Co Ltd [1990] 3 NZLR 299
  18. ↑ Cook v Evatt (No.2) [1992] 1 NZLR 676
  19. ↑ Grimshaw v. Ford Motor Co. (Ford Pinto Case), 174 Cal. Rptr. 348 (Cal. Ct. App. 1981) (Tamura, J.), subhead VI.
  20. 1 2 Laycock, Douglas (2002). Modern American Remedies. Aspen. pp. 732–736.
  21. 1 2 Conklin, Michael (2020). "Factors Affecting Punitive Damage Awards". Rochester, NY. SSRN   3615013.{{cite journal}}: Cite journal requires |journal= (help)
  22. ↑ Formosa Plastics Corp. USA v. Presidio Engineers & Contractors, Inc. 960 S.W.2d 41 (Tex. 1998)
  23. ↑ McMichael, Benjamin J.; Viscusi, W. Kip (July 2017). "The Punitive Damages Calculus: The Differential Incidence of State Punitive Damages Reforms". Southern Economic Journal. 84 (1): 82–97. doi:10.1002/soej.12217.
  24. ↑ "TXO Production Corp. v. Alliance Resources Corp., 509 US 443 (1993)".
  25. ↑ Dryden, Dene (October 5, 2016). "Here's the story behind the 'Caution: Contents Hot' label on your coffee". Business Insider .
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